RBI Rupee Stability: Govt and Central Bank’s Plan to Defend Currency Amid Volatility

RBI Rupee Stability: Govt and Central Bank’s Plan to Defend Currency Amid Volatility

RBI Rupee Stability has been a major concern as the Reserve Bank of India (RBI) actively defends the Indian rupee to manage depreciation and control market volatility. The government remains confident in RBI’s strategic interventions, ensuring that the rupee does not experience excessive fluctuations.

Despite initial speculations that new RBI Governor Sanjay Malhotra might allow the rupee to depreciate, RBI has reaffirmed its stance on stabilizing the currency through active intervention. This blog explores RBI’s approach to rupee stability, the government’s position, the impact of foreign exchange reserves, and how global economic conditions—including the US tariff policies—are shaping the Indian currency’s movement.

Table of Contents

1. RBI’s Currency Defence: Govt’s Stance on Rupee Stability
2. Rupee Depreciation Trends: A Market Overview
3. Impact of Forex Reserves on Currency Stability
4. Global Pressures and Tariff Impact on the Rupee
5. Conclusion: What Lies Ahead for RBI’s Forex Policy?

RBI’s Currency Defence: Govt’s Stance on Rupee Stability

The Indian government has taken a proactive stance to ensure RBI Rupee Stability, emphasizing that excessive depreciation of the rupee is not desirable. The government has been in continuous discussions with the Reserve Bank of India (RBI) to monitor currency fluctuations and devise interventions that can mitigate volatility while allowing market-driven adjustments.

Government’s Position:

The government remains firmly against excessive rupee depreciation, highlighting the need for a stable exchange rate to support trade, investments, and macroeconomic stability. Authorities believe that India’s forex reserves of $638.7 billion (as of February 2025) are sufficient to defend the rupee against aggressive declines. Senior officials have assured that RBI is well-equipped to manage currency fluctuations, aiming to restore the rupee to December 2024 levels when it averaged ₹84.99 per USD. India’s policy stance is aligned with maintaining a balance between currency defense and allowing natural market corrections.

RBI’s Policy Direction:

The RBI remains committed to intervening in the forex market to curb excessive volatility, ensuring that the rupee does not face sudden or erratic depreciation. Despite speculation that new RBI Governor Sanjay Malhotra might follow a more hands-off approach, sources confirm that there is no shift in RBI’s forex management strategy. RBI continues to intervene strategically, using its reserves to smoothen rupee fluctuations while avoiding outright market manipulation. Excessive exchange rate stability in the past two years resulted in the IMF reclassifying India’s currency regime as a ‘stabilized arrangement’ rather than a fully floating exchange rate.

Foreign Investor Impact:

Foreign Portfolio Investors (FPIs) have been net sellers of Indian equities, withdrawing $15.9 billion in 2025 amid global uncertainties and a strong dollar. Persistent capital outflows have exerted downward pressure on the rupee, making RBI’s intervention crucial to prevent a rapid slide. Experts believe that while RBI’s defense measures help stabilize short-term market confidence, global macroeconomic conditions will continue to influence the rupee’s trajectory.

Market Sentiment and Strategic Takeaways:

RBI’s intervention reassures investors about rupee stability, preventing panic-driven capital outflows. Government and RBI prioritize stability over aggressive market control, maintaining confidence in India’s forex management strategy. Market players anticipate that while short-term stability is achievable, external factors like US tariff policies and global dollar strength will dictate medium-term rupee movements.

As RBI and the government work in collaboration, market participants will closely monitor forex reserve levels, RBI’s intervention patterns, and policy signals to gauge the rupee’s future trajectory.

Government’s Position:

• The Indian government does not want the rupee to depreciate excessively and remains committed to ensuring RBI Rupee Stability.
• Officials believe that India’s forex reserves are sufficient to defend the currency.

RBI’s Policy Direction:

• Despite previous speculation, RBI has chosen to intervene actively in the forex market to prevent excessive fluctuations.
• Central bank sources indicate no change in the forex policy, even under the new governor.

Foreign Investor Impact:

• Foreign Portfolio Investors (FPIs) have been net sellers of Indian equities, offloading $15.9 billion in 2025.
• Capital outflows are exerting downward pressure on the rupee, further justifying RBI’s defensive stance on rupee stability.

Rupee Depreciation Trends: A Market Overview

The Indian rupee has been on a declining trend, reflecting both domestic and global economic conditions.

Recent Currency Performance:

• The rupee weakened 3.5% against the dollar in the past six months, reaching 86.88 on March 7, 2025.
• Comparatively, the Chinese Yuan and Japanese Yen weakened only 1.7% and 0.7%, respectively.

Market Observations:

• Experts believe that excessive exchange-rate stability in the past two years may have come at a cost to the economy.
• The International Monetary Fund (IMF) recently reclassified India’s exchange rate system from floating to stabilized arrangement due to RBI’s interventions.

Market Implications:

• Depreciation attracts new players to the forex market.
• Potential profit opportunities for investors holding short positions on the rupee.
• Government and RBI aiming for a return to December 2024 exchange levels.

Impact of Forex Reserves on Currency Stability

India’s forex reserves have been depleting, raising concerns over how long RBI can sustain interventions for RBI Rupee Stability.

Forex Reserve Status:

• India’s forex reserves stood at $638.7 billion as of February 28, 2025, reflecting a $7.7 billion decline since March 2024.
• Reserves have fallen $16.2 billion since December 2024, suggesting active currency defense operations by RBI.

Long-Term Considerations:

• Former RBI Deputy Governor BP Kanungo previously noted that India’s forex reserves are borrowed, not built on export surpluses.
• Volatility in capital flows means that forex reserves alone may not be sufficient for long-term rupee stability.

Strategic Takeaways:

• RBI’s forex interventions may not be sustainable indefinitely.
• Stronger economic fundamentals are required to support the rupee’s stability.

Global Pressures and Tariff Impact on the Rupee

Tariff Risks from the US:

• US President Donald Trump has announced plans to impose reciprocal tariffs on trading partners, starting April 2025.
• Economists, including Dhiraj Nim from ANZ Banking Group, warn that tariffs could force the rupee to weaken further.

Expert Opinions on RBI’s Defense Strategy:

• Economists believe aggressive rupee defense is not advisable, as RBI’s forward book is in a negative short position.
• Some experts suggest that RBI should let the rupee adjust naturally to prevent long-term market distortions.

Key Market Impacts:

• If US tariffs are imposed, rupee depreciation is inevitable.
• RBI may have to shift from active intervention to a controlled float strategy.

Conclusion: What Lies Ahead for RBI’s Forex Policy?

RBI Rupee Stability remains a key priority, with a balance between market forces and forex stability. The government aims for a stable rupee but acknowledges global risks. Experts suggest that rupee depreciation may be inevitable in the face of US trade tariffs and capital outflows.

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Disclaimer—Estabizz Fintech Private Limited

At Estabizz Fintech Private Limited, we strive to provide accurate financial insights. However, this blog is for informational purposes only and does not constitute investment, legal, or financial advice.

Readers should consult financial professionals before making any investment or forex trading decisions. Market conditions are subject to change, and RBI policies should be monitored for updates.

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